Hormuz Shock Why Oil Spiked and the ASX Got Hit

What happened in the Middle East, sending oil prices higher

US and Israeli forces launched joint airstrikes on Iran on 28 February, triggering a broad wave of disruption across the Middle East’s energy infrastructure. Since then, tanker traffic through the Strait of Hormuz has slowed to a near standstill, while Iran has responded with drone strikes and, most recently, direct attacks on Qatar’s largest gas field and the Ras Laffan industrial city, which reportedly sustained extensive damage.

That escalation has pushed oil sharply higher. Brent surged above US$107 and has traded close to US$110 as markets price in a much more severe supply shock across the region.

What stands out is that prices have continued rising even as the US and its allies try to contain the move. The International Energy Agency has authorised a 400 million barrel emergency release, the largest action of its kind, but even that has not been enough to fully offset the market’s fear around disrupted Gulf energy supply.

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What is the IEA saying about oil supply

In its March report, the IEA described the war in the Middle East as the largest oil supply disruption in the history of global oil markets, with crude and petroleum flows already down by 20 million barrels per day and Gulf countries cutting production by 10 million barrels per day.

Oil prices have moved violently since the United States and Israel launched joint airstrikes on Iran on 28 February. Disruption to Middle Eastern supply, damage to regional oil infrastructure, and the halt in tanker traffic through the Strait of Hormuz sent Brent futures surging to almost US$120 per barrel. Prices later eased back, with Brent around US$92 at the time of writing, but that still leaves oil up US$20 per barrel for the month.

The ASX has also seen one of its sharpest one-day selloffs since the early stages of COVID-19, with energy the only sector able to hold up against the broader pressure. Materials and technology bore the brunt of the decline, especially after the recent rate hike to 4.1%, which has added more pressure to risk assets such as tech.

What was also notable is that gold fell 5%, which is unusual given it is normally treated as a safe haven during periods of uncertainty and rising inflation.

The inflation compound effect on ASX stocks

This is where the compounding effect starts to matter. With inflation rising and the RBA lifting rates again, the cash rate is now 4.1% after a second consecutive monthly increase.

We are effectively seeing three forces hit the market at the same time. First, the oil shock is pushing up input costs and inflation expectations. Second, the domestic RBA tightening cycle is adding further pressure across the economy. Third, that combination is driving multiple compression as the equity risk premium shifts and higher-risk assets come under more pressure.

In simple terms, this is not just one macro headwind. It is several hitting at once, which is why market conditions are becoming much harder for risk assets.